World's carmakers woo Chinese consumers

SHANGHAI — A tall Chinese model draped herself over a cobalt blue Chevrolet Cruze. Two finalists in a popular TV singing contest, "The Voice of China," belted out songs for Buick. And the night before, the designer of a GM Riviera concept car talked of drawing inspiration from water spirits and the color of Chinese jade.

This was the kickoff for General Motors' portion of this week's Shanghai auto show, the biggest, most extravagant expo of its kind in the world. Throngs of Chinese consumers and dealers have been packing the Pudong exhibition center's 17 cavernous halls, each nearly as big as the National Air and Space Museum, where they ogled about 1,300 cars.

"In North America, it's all about the product. Here, it's more about glitz and glamour," said Tim Lee, president of international operations for GM.

The stakes are huge. China is the fastest-growing, biggest new-car market in the world, with 19.4 million vehicles sold last year, easily outstripping sales in the United States. And that means that the future of GM, and virtually every other major automaker, lies here, where consumers are retracing U.S. patterns from the 1960s through today. The competition is fierce, with GM and Volkswagen vying for the title of most popular car company, while automakers such as Hyundai, Chinese giant Geely and high-end Maserati take aim, too.

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Although a slowing of Chinese economic growth could cool the market here, automobile sales are up 10 percent this year, and analysts say they could hit 30 million annually in a decade or so — which was the size of the global auto market in 1970.

That's good news for the industry, but the boom in sales also carries some perils for Chinese modernization: China's cities are choked with traffic and pollution, and car exhaust accounts for the most lethal small particles in the air. Increased car ownership is driving up gasoline demand at double-digit rates, boosting China's oil consumption to about 10 million barrels a day, most of it costly imported crude.

The government has offered incentives for buying smaller cars and has imposed registration restrictions in four major cities. Shanghai started auctioning new license plates, and the price hit $14,480 in March, according to China Automotive Review.

Yet despite those barriers to ownership, car sales keep surging as people's incomes rise. The Chinese want more cars — and bigger ones at that. Sales of sport-utility vehicles are "white-hot," said one auto executive, and the consulting firm McKinsey says they will triple to 5 million a year by 2020. GM offers five SUVs in China but will introduce nine new or refreshed SUV models within five years, said Bob Socia, president of GM China. That will drive the need for more capacity and four new plants.

"In China . . . a bigger car is a message — and a positive message — about my own success and my own family's success, which is rather in line with what we see in the U.S.," said Axel Krieger, managing partner of McKinsey's Greater China automotive practice.

Companies are trying to cater to those tastes. GM has pushed the "passion for dreams" theme for Buick and "Be Dramatic" for a new Cadillac campaign. China's BYD, the lithium ion battery and conventional-car maker in which Warren Buffett is an investor, has a "build your dream" slogan. Mercedes-Benz appealed to national pride, promoting a line of vehicles that an executive declared were "made in China, for China."

Although China's per capita income is less than $6,000, even luxury car makers are vying for a piece of the action. McKinsey says China could pass the United States in 2016 and Europe in 2020 as the world's largest luxury car market.

"In China, if you have money, you sit in the back seat and have a driver," said Ulrich Bez, chief executive of Aston Martin, which has 14 dealerships in China and sold about 250 cars last year for about $200,000 or more each. "To sit and drive yourself is new, to experience mobility and speed and dynamics." Although urban congestion keeps traffic slow, the company is promoting its four-door Rapide S, which can go about 190 miles per hour. The recommended price: about $575,000.

Socia said GM would introduce one locally made Cadillac model a year through 2016, with the average buyer 10 years younger than the U.S. luxury car buyer.

With China's huge appetite for new brands, big U.S. automakers are being pulled in a direction opposite to where they were headed just four years ago. In 2009, when GM went bankrupt and the fortunes of other car companies plummeted, many U.S. analysts put part of the blame on inefficiencies caused by having too many brands. The Treasury Department, after pouring money into GM, urged the company to kill its weakest brands, including Buick.

But in China, Buick has a long history and an appeal to modern consumers, and GM argued successfully to keep it. Now, it's one of the three best-selling makes here, after VW and Hyundai. It's just one of seven GM brands, counting the company's Chinese partners, giving the carmaker about 15 percent of the overall market.

Each nameplate appeals to a different niche: Cadillac is aiming for the luxury buyers, Buick for the young middle-class consumer, and Baojun for the low-end market where Chinese firms sell cars, including one called the Panda, for as little as $6,000.

On Sunday, the show was teeming with those consumers, amid blaring music and flashing giant video screens. Many of the people, who paid $16 each and waited in long lines to get in, were young couples. Sophia Yu, who works in the service department of China Merchants Bank, and her husband, Zhen Ning, an airline employee, were looking for a car to replace their seven-year-old blue Buick Excelle.

Noting that they have a 3-year-old child, Yu said she likes the safety features of their Buick and is eyeing the new Buick Regal. Zhen said he likes all sorts of American products and would be willing to try a Ford. She likes blue; he likes red. He drives to work; she takes public transport.

What to do with the old car? They plan to sell it rather than give it to a family member, because their retired parents don't know how to drive anyway. That decision reflects a new development in China, where there haven't been enough cars until now to develop a used-car market with predictable prices. Although GMAC and other finance firms are expanding here, Zhen and Yu plan to pay cash, the same as about 85 percent of Chinese car buyers.

Like VW and other major competitors here, GM has nearly doubled its dealership network since 2009, according to Richard Choi, the sales and marketing director.

For all the rapid growth, potential pitfalls remain for foreign companies, which must partner with local firms to manufacture in China. The government is still trying to shape the industry, pressing, for example, for more plug-in hybrid or electric vehicles.

Although hybrids would limit emissions, the electric-vehicle push will do little as long as coal-fired plants account for 75 percent of China's electricity. Indeed, recent studies suggest that with coal so dominant, electric vehicles might be worse from a climate perspective than gasoline-powered ones. Premium prices for electric vehicles also could hurt sales, as they have in the United States.

China's government is eager to promote national champions and has set a goal of boosting local firms' market share from 30 percent to 40 percent. But if anything, independent Chinese companies are losing market share, said Yale Zhang, managing director of Auto Foresight, with only Geely firmly in the top 10.

Then there are the knockoffs. In 2004, GM Daewoo Auto & Technology filed a lawsuit against Chery Automobile for violation of intellectual property rights. The two reached a settlement in 2005. But the exhibition this week still features cars that bear striking resemblance to one another. BYD is displaying cars that look a lot like the Honda Civic, the Toyota Corolla and the Toyota Aygo. Luxgen is showing a car that looks like a small Buick GL8. And the Roewe SUV resembles a BMW model. One international executive marveled at "the sheer audacity."

But one thing is certain: China's automobile market will remain the world's largest and, perhaps, its most competitive.

"Before, a car was a luxury thing, a dream for young people," Zhang said. "Now, it's not a Gucci, but it's not a necessity yet. It's in between. People still worship a car, but, at same time, you better have a competitive price."

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